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<h1 class="txttitle">The Coming War Over Net Neutrality</h1>
<p class="txtauthor">By Tim Wu, The New Yorker</p>
<p class="date">05 May 13</p>
<p> </p>
<p><img src="cid:part1.07000700.06000100@gmail.com" border="0"><a
href="http://www.newyorker.com/online/blogs/johncassidy/2013/05/tom%20-%20wheeler-federal-communications-commission.html">om
Wheeler</a>, Obama's nominee to run the Federal Communications
Commission, surely has much he hopes to get done. Perhaps it's
freeing up some more wireless spectrum or bringing cell-phone
service to Mars - who knows. But chances are (assuming his
confirmation goes smoothly) that he'll end up spending time on
different challenges, and a chief candidate is a resurgence of the
net-neutrality wars. </p>
<p class="indent">The outgoing chairman, Julius Genachowski, made
many very good and important decisions, but he also made a rather
terrible one that may darken Wheeler's term. Genachowski spent
years and much political capital negotiating net-neutrality rules
that everyone could live with, only to enact them in a way that is
<a
href="http://gigaom.com/2012/07/03/inside-verizons-attack-on-network-neutrality/"
target="_blank">highly vulnerable to a court challenge</a>. That
challenge (brought, cynically, by Verizon after it negotiated the
rules it wanted) may soon invalidate years of work and create
industry chaos. </p>
<p class="indent">The net-neutrality rules now in place reinforce
the Internet's original design principle: that all traffic is
carried equally and without any special charges beyond those of
transmission. Among other things, the rules are a pricing truce
for the Internet; without them, we can expect a fight that will
serve no one's interests and will ultimately stick consumers with
Internet bills that rise with the same speed as cable
television's.</p>
<p class="indent">Unfortunately, like American Presidents who hope
to avoid the politics of the Middle East, the F.C.C. may
ultimately have no choice but to get involved in this fight. But
one very important thing has changed since last time. Cable
operators like Time Warner and Comcast, if they think carefully,
should come to understand that they now need a net-neutrality rule
more than anyone. </p>
<p class="indent">Ask a cable operator what makes its life
miserable, and the answer is immediate and obvious: programming
fees. Such fees have roughly doubled over the past decade during a
period of near-flat inflation and economic stagnation. Sports is
the most outrageous example: what ESPN charges cable operators
keeps growing, and is now approaching five dollars per customer.
The actual cost of providing the entire Internet to cable
customers, which is something like a few dollars a month, is less
than that. It is a lose-lose situation for nearly everyone (except
athletes). The real victims are consumers, especially low-income
consumers, who ultimately foot all the bills but cannot control
the costs.</p>
<p class="indent">If programming costs are the worst thing in cable,
the best part of the business is selling broadband. <a
href="http://www.newyorker.com/online/blogs/newsdesk/2013/05/the-number-167.html">Cable
broadband</a>, which costs almost nothing to provide once the
infrastructure is built, has little real competition, and
operators can charge between forty and sixty dollars for the
product, yielding margins that analyst Craig Moffitt describes as
"comically profitable." Margins greater than ninety per cent are a
sweet business no matter what you're doing, and what cable
operators have to realize is how crucial net neutrality is to
making those margins possible. </p>
<p class="indent">An important aspect of the Internet's original
design is that many prices were set at zero - what have been
called zero-price rules. The price to join the network is zero.
The price that users and sites pay to reach others is zero: a
blogger doesn't need to pay to reach Comcast's customers. And the
price that big Web sites charge broadband operators to carry their
content is also zero. It's a subtle point, but these three zeros
are a large part of what makes the Internet what it is. If net
neutrality goes away, so does the agreement to freeze prices at
zero.</p>
<p class="indent">What net neutrality means in practice for cable
operators is that they don't have to deal with rising programming
costs in broadband. Cable operators pay Disney good money to carry
ABC as a cable channel. But when a cable customer watches ABC
shows over the Internet, using Hulu Plus or Amazon, the operator
pays nothing. When they go to the ABC Web site, they also pay
nothing. Rather, the consumer deals with the content provider
directly, by watching ads or paying Amazon. The result: cable
doesn't have to pass on costs that it cannot control.</p>
<p class="indent">Back in the aughts, cable operators hated the idea
of net neutrality because they hoped to charge then-rich firms
like Yahoo extra cash to reach their customers (in telecom jargon,
a "termination fee"). But that was when the Internet companies
were far weaker. Times have changed, and firms like Google and
Facebook now hold serious bargaining power. You can't expect to
provide a decent Internet service that doesn't include Facebook
and Google. And so, instead of being able to charge Google to
reach its customers, cable operators, absent net neutrality, may
have to pay programming fees to Google. In other words, Google
might very well become the next ESPN, and the whole nightmare will
start again.</p>
<p class="indent">Admittedly, it is hard to know exactly how things
would work out if the zero-price rules are abandoned. Cable still
has serious market power, and might, on balance, be able to charge
more than it gets charged. But if you're a cable operator, why
take that bet when you're already sitting on giant profit margins?
Why risk the best business going? Beyond cable operators, a battle
royale over Internet programming and termination fees would
ultimately be terrible for consumers; the Internet would start to
get both worse and more expensive. </p>
<p class="indent">Think of it this way: net neutrality, which sets
all these prices at zero, is effectively a grand truce between the
big app firms and the infrastructure providers. It eliminates an
unnecessary middleman: consumers deal directly with content
vendors and app firms. That's a much healthier market dynamic than
one driven by hidden, passed-on costs. If cable TV isn't a good
enough example, consider the dysfunction of the health-care
industry, where consumers never see what they are paying for.
That's what the present rule avoids.</p>
<p class="indent">Finally, and most importantly for the public, the
net-neutrality rule continues to provide a kind of subsidy to
smaller speakers and startups, from bloggers to Quora and
Wikipedia. The Internet would look a lot different if these kinds
of players had to pay cable before reaching their customers. It
would start to look a lot more like cable TV, and few things could
really be worse than that. </p>
<p class="indent">Wheeler and the other members of the Federal
Communications Commission will be very tempted to try and avoid
and ignore <a
href="http://www.newyorker.com/archive/2006/03/20/060320ta_talk_surowiecki">net
neutrality</a> during Obama's second term. If, magically, the
rules aren't struck down, they will have that luxury. But if the
rules are struck down, avoiding the problem may lead to a
replication of the horrors of the cable-television market. There's
trouble brewing; facing it is both the Commission's responsibility
and its destiny.</p>
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